The most important things we learned from Apple's earnings call

Apple has pinned its hopes for the future on its services business, which includes things such as its commission on sales through its app store and revenue it gets from selling subscriptions to offerings such as iCloud.

Its app store sales revenue constitutes a large portion of its services sales, and a big portion of its app store revenue comes from the sale of games in China.

Unfortunately for Apple, Chinese authorities stopped approving new games last spring and that depressed app store sales and, in turn, Apple service's revenue.

"We believe this issue around the approval of new game titles is temporary in nature but clearly affecting our business right now," CFO Luca Maestri said during the call.

In the first quarter Apple's services revenue grew at a 19% annual clip, at the low end of the growth its posted in recent quarters.

On the conference call, Cook said the company is broadly having trouble in emerging market countries where the dollar has appreciated against the local currencies, making iPhones even more expensive than they would be otherwise.

In particular, Cook singled out Turkey, where the lira was down by 33% versus the dollar in the December quarter from the previous year. Apple's sales there plunged by nearly $700 million in the period from the year-earlier quarter, he said.

But Apple also is struggling in some developed countries. In Japan, it's been hit by the decline of carrier subsidies, which helped to defray the upfront cost of phones, Cook said. Apple's overall sales in the country fell 5% from the year-ago period to $6.9 billion.

"Our customers are holding on to their older iPhones a bit longer than in the past," Cook said.

The Apple CEO did not provide specifics about how much longer the upgrade cycle has become, but the comments represent an important acknowledgment about the changing nature of the company's flagship business.

A recent Business Insider SurveyMonkey audience poll found that 1 in 3 iPhone owners in the US has not upgraded to a new iPhone because prices are too expensive or because they don't feel the new models have enough must-have new features.

Apple's iPhone revenue fell 15% in the holiday quarter due to the slowdown in upgrades. Cook attributed the decline to several factors:

• A strong dollar boosted iPhone prices in emerging markets.
• Wireless carriers are offering fewer and less valuable subsidies, effectively increasing the upfront cost consumers have to pay for Apple's phones.
• And Apple's battery replacement program, which allowed customers to swap out the power source in their phone for a minimal fee, has encouraged consumers to hold on to older phones longer, he said.

The company expects those factors to continue to depress sales in its second fiscal quarter, Apple CFO Maestri said. Overall, Apple expects that its overall second quarter revenue will fall by as much as $6 billion, or 10%, from the same period last year.

Refreshing its Mac computer lineup in October had a big benefit for Apple — the company posted record Mac revenue in its first quarter, pulling in $7.4 billion in sales.

Apple said it also saw record revenue in its Wearables, Home, Accessories product category. Boosted by burgeoning Apple Watch and AirPod sales, that line of products saw revenue jump 25% to $7.3 billion in the quarter.

As mentioned before, Apple's services business' revenue grew by 19% in the first quarter. That was up from the 17% pace in the fourth quarter last year, but well off the pace the business was running at earlier last year.

In addition to the problem with games sales in China, the services business was affected by the strong dollar, which boosted the local currency price for Apple's services in some markets, and by a slow-down in the growth of sales of AppleCare, the company's warranty offering, Luca Maestri said. A recent accounting change also made growth in the business appear lower than in the past.

On the flip side, the services business is highly profitable, as the company made clear for the first time in its report. The gross margin for the services business — the difference between the revenue Apple garners from those offerings and its direct costs of providing them — was 63% in the quarter, up from 58% in the year-ago period.

As Apple officials themselves acknowledge, a crucial factor in the future of the company's services business is continued growth in its number of users.

For the first time, Apple disclosed the size of its iPhone "installed base," revealing that there are currently 900 million active iPhone users.

That's up 75 million from the previous year, the company said. And the number of active users of its smartphones was up in all five geographic areas in which Apple segments its sales, the company said.

Including users of its Macs and iPads, Apple has 1.4 billion total users of its devices, up 100 million from the beginning of last year.

Apple Music added around 10 million new paying customers since the summer and now has 50 million paid subscribers, Cook said. That's still below Spotify's 87 million paid subscribers, but Apple is making steady gains.

Apple News has some 85 million active users, Cook said. That's not bad for a service that's only available in three countries, but measured by the scale of free internet services like Google or Facebook, it's still tiny.

Across all its services, Apple now has 360 million subscribers, up 120 million from a year earlier, Maestri said. It expects to surpass 500 million subscribers in 2020, he added.